Introduction to Economics
Lonergan Institute for the “Good Under Construction”
April 11, 2015
As the request of Mr. Richard Kral, I have been asked to give an introductory talk about economics and what we hope to do in this seminar, this forum, that we would like to set up in such a way that it would bring persons together in a way that would lead to fruitful, collaborative work. If we think about it, we all know that we can each do more in our individual labors if we can find that we are working with others (other persons) who, more or less, are on the same wavelength. Interested in certain questions, working from the same basic set of first principles. We remember what Aquinas says about first principles. A first principle is not the same thing as a cause. A first principle is what is first in an ordered set of variables. The choice of an apt starting point determines how a larger number of variables are to be positioned, relative to each other. So much depends on the wise choice that we can make about what should be our initial point of departure. The variables that are subsequently ordered do not possess any lesser reality, they do not exist at a lower level than that which one has as an initial, basic, first principle.
We attend then to the question of economics and, as I attend to this question, we can all be inspired to a certain extent perhaps by the work and labors of G. K. Chesterton. He wrote a book about St. Thomas Aquinas (it is still in print) and it is rated as the best introduction to Aquinas that one can find although it is written by an amateur. Chesterton always referred to himself as a journalist. He was not schooled in theology. Not a professional theologian. Yet, his book on Aquinas is seen to be one of the best books ever written about him. And so, in dealing with economics, we can be inspired by the thought that, even if we might not have much of an understanding of economics, even if we have not engaged in a thorough study of economics, perhaps it is possible to present a number of observations that are not lacking in value and which can possibly help others, leading us into a fuller study of economics.
I would like to make the following observations.
First, economics exists as a human science. Instead of attending to instances of matter in motion or internal changes which would refer to chemical transformations, it attends to a species of datum that has been brought into being by the actions of many human subjects (many human agents) acting together in a cooperative fashion to fashion a social order. Economics attends to something which is constitutive of our human world although it would not be wise to believe that economics exists as the only variable. In Aristotle, we can find reflections which join economics to political science and ethics. These other variables need to be attended to if we are to understand our human world and the kind of order which can exist within it. To emphasize the importance of economics to the exclusion of other variables is to operate from a species of philosophical outlook which appears to be indebted to a philosophy of mind and being which would have to be described as sensate and materialist. That which is real is that which I can sense with my various acts of sense. These things being said thus, because economics attends to something which belongs to our world (something which we have brought into being), we hesitate and ask about the value of attending to an understanding of economics. In the so-called “hard sciences” (we think especially of physics and chemistry), throughout our human world, we find universal agreement about how we should do good work in physics and chemistry. All the specialists know how they are to proceed (how they should proceed) and what kind of intellectual demands must be met. A common agreement exists with respect to questions of method and this agreement makes for collaboration world wide and so, as a consequence of this collaboration, progress can be more easily made and the fruits of our labors can be more readily communicated to other persons. However, even as we admit or say that economics is to be viewed as the science of economic exchange, we all know that all the human sciences are seen to exist in a manner which detracts from its possible value for us. In comparison to the methodological developments that have informed the development of the so-called “hard sciences,” in the human sciences and, for us, in economics, no agreement exists about how we can distinguish between good and bad economics. No universal agreement exists with respect to questions about method in economics. And so we begin our labors with a certain foreboding, an anticipation of futility, a sense of possible failure. Maybe, yes, we can gain some degrees of understanding. In Germany, in the 19th Century, in a tradition of reflection that began with the hermeneutical philosophy of Friedrich Schleiermacher, it was eventually said that, while the “hard sciences” seek explanation, the human sciences are geared to understanding (to possible growth in human understanding). The two differ since, in the current condition and state of the human sciences, no explanatory clout exists (nothing that can be compared to the rationalities that are present in the “sciences of nature”). Among the various human sciences, the kind of understanding which exists has not reached a plateau or some kind of breakthrough which can speak about explanation as distinct from understanding. In economics, we have a commonsense type of understanding. We can understand the intelligibility of individual events. But, our understanding of events is not correlated with laws or sets of laws that can specify a specification of meaning which can cut across different periods of time and space and culture. A commonsense understanding of anything aways refers to the meaning of concrete circumstances. But, when we refer to theoretical apprehensions of meaning, we refer to apprehensions of meaning which always transcend current conditions. We begin to move toward a higher level when we begin to look for a set of meanings that can explain a large variety of changing economic conditions. Put bluntly, we would want to move (1) from description to explanation and then from explanation back to description and then within this context (2) we would want to know how we can make good decisions which could add to the betterment of our economic situation. Ideally, we would want to move from a cycle or a chaos of recurrent booms and busts toward an ordering of variables that can point to a greater measure of intelligibility which, possibly, can begin to exist for us within our economic order. The healthier a given economic order, the greater the possibility or the likelihood that other forms of human flourishing will begin to emerge and exist.
Second, to emphasis a point that I have already hinted it, economic activity is to be regarded not as constituted by the acts or actions of living beings who happen to exist as men and women but by acts or actions which exist essentially as human acts, human actions (proceeding from human subjects). In the context of his own day and expression, Aquinas used to distinguish between the acts of a man and acts which exist as human actions. Correct me if I am wrong, but I think that somewhere Aquinas speaks about a man who is reading a book or focusing on some kind of work, and a fly moves towards him in a way which triggers an automatic negative response. A man lifts or moves his hand to ward off the presence of an unwanted fly. Yes, a human being does something (an act, an action) but the act, the action, is not to be regarded as essentially a human act. Animals can engage in like movements that serve to keep flies at a distance. But, their actions lack moral content. They cannot be seen to exist as human acts, as moral acts that are chosen after a number of different options are considered and constructed for the purpose of achieving a given end. A lack of foresight and deliberation points to acts or actions that are not properly human. Hence, if this real distinction is applied to economic activity, we notice that economic activity is not supposed to exist in a way that is lacking in human reflection, deliberation, and choice. When intelligibility is introduced into a set of material conditions, a change occurs. Perhaps we should speak about a transformation. The general object is always the achievement of some kind of good that, allegedly, betters and improves our human condition. This good is supposed to exist as an intelligible thing, as the product of intelligent movement (intelligence in act). Something exists as a good which has been desired. A given action possesses moral value because of an intelligibility that is now present which had not existed before. Think here for an example about how gardens differ from wilderness, undeveloped land. In the tilling and fertilization of the soil, human intelligibility is added to physical, chemical, and biological conditions (the intelligibility which exists within these conditions) and the happy result is the emergence of something that is more wonderful, more lovely, and more beautiful than what had previously existed. I belabor a perhaps obvious point in order to point toward a possible meeting which needs to occur between the requirements and demands of economic life and a more general type of demand or need which points to moral considerations and how a human type of living differs from other types of living. In any kind of moral life, we always move from that which we understand and know to that which we bring into being for perhaps the first time. If our economic activity is to benefit our lives as human beings (if our lives are to be human in the full and proper sense), then, in some way, there needs to be some kind of understanding or a meeting that can join ethics and economics with each other. The communication of good which can exist in a society is best fostered if the good of economics is distinguished from the good of technology and if these goods can be distinguished from the kind of good which exists in political life (the good which refers to the functioning of a political order). A better understanding of the kind of moral good which exists in economic activity should lead to an understanding which can order the good of economic life to the existence of other goods. Greater clarity in the ordering of different moral goods through the intelligibility that is known to exist in this ordering should lead to a better division of authority and responsibility within a given society and, as a consequence of this, a consequent lessening of confusion when decisions of various kinds have to be made with respect to the functioning of a given social order which exists as a society. When we look at our world, have we been creating a situation where economic and political goods are often put together and confused with each other? Have unwise decisions been made in the economic order because of dysfunctions that have existed within a given political order? Can we admit that unwise decisions are made within the political order when efforts are made to effect economic changes for reasons that are irrelevant to the good of functioning which should exist within economic life?
Third, a growing interest in economics comes to us somewhat recently in the life of the Church. We know that, according to Church teaching, souls are brought to God through a life of faith that is informed by charity. The holy Council of Trent speaks about a faith that is informed by good works. Another way of speaking speaks about the salvific value of faith and good works. The two must go together. And so, it seems that, with the work of Bishop Wilhelm Emmanuel von Ketteler (d. 1877), the German bishop of Mainz, a concern for social justice begins to emerge in a way that is to be differentiated from the sufficiency of charity. In other words, it is said by some that some understandings of charity are not sufficient in dealing with questions that have to do with social justice issues and the necessity of social justice within the framework of a given society. It is said about Bishop Ketteler that he was the first person in the hierarchal life of the Church to speak about questions of social justice in the wake of the industrial revolution. We know, from our history, that the Industrial Revolution began in the United Kingdom approximately in 1780 and that it lasted into Queen Victoria’s reign, until about the 1840s. Let us say that the first phase of the Industrial Revolution came to an end at about the time of the first International Exhibition that was organized by Prince Albert, Queen Victoria’s consort, in the 1850s. This revolution later spread to the European continent. We think of northern France, the Benelux countries, and Germany. Traditional society was uprooted. Economic life began to move away from the dominance of an agricultural economy. The meteoric rise in agricultural productivity that had begun to occur in the 18th Century freed a growing number of potential workers who could now engage in other kinds of occupation. The population of cities swelled. A new form of economic organization disrupted an organization of society that had existed for many centuries. The uprooting and dislocating of many persons led to experiences of human suffering that called for a new kind of pastoral response which perhaps can be described as a more intense form of pastoral concern. Beginning the 1880s in western Europe, it is said too that, during these years, fewer and fewer persons began to practice their Catholic faith in any kind of regular way. Then, 80 years later, a similar noticeable fall in the rate of Mass attendance began to appear in the US and Canada (in the 1960s). Under the influence of Bishop Ketteler, in 1891, Pope Leo XIII issued Rerum novarum, the first papal encyclical which attempted to deal with these technological and economic changes. Simply put: the free operation of market forces must be tempered by moral considerations. As the Pope avers:
Let the working man and the employer make free agreements, and in particular let them agree freely as to the wages; nevertheless, there underlies a dictate of natural justice more imperious and ancient than any bargain between man and man, namely, that wages ought not to be insufficient to support a frugal and well-behaved wage-earner. If through necessity or fear of a worse evil the workman accept harder conditions because an employer or contractor will afford him no better, he is made the victim of force and injustice.
Although it can be argued that the teachings of Rerum novarum are grounded in teaching that comes down to us from scripture and tradition (St. Augustine and St. Thomas Aquinas), the articulation and application of this teaching to the existence of new conditions as this applies to the rise of a new economic order has created a context for explicit forms of reflection which now ask about the nature of economic life and about how, as human beings, we can create an economic order which is most suited to encourage forms of human flourishing that can lead to the building a new human culture: a culture that would be essentially open to God and which would rely on supernatural specifications of meaning and being as the best means that can lead to transformations of life which would most fully actuate the potentiality of our human existence.
Fourth, the turning of the Church’s teaching office toward a more explicit interest in the solution of economic and social problems has enhanced or perhaps we can stay that it has generated an interest in how we should think about economics. In the English speaking world, if we should want to speak about a Catholic school of economics, we can perhaps best speak about the distributionism of Catholic writers as we find this in the works and labors of Hilaire Belloc and G. K. Chesterton. Belloc died in 1953 and it is said that he wrote and published about 150 books. Yet, despite the number, we find a rather high level of quality in the analysis that we can find in how he deals with social and political issues. In his writings a strong animus exists against both the Protestant Reformation and its many consequences. He rejected the mindset of the English establishment as it existed in his day and he was not too appreciative of the old English Catholic upper class. With Chesterton (George Bernad Shaw spoke of them as “Chesterbelloc”), he argued against the value of a form of economic organization which turned large numbers of persons into “wage slaves.” Like Marx, he held that the industrialization of the human economic order encouraged a sense of alienation among working people and this alienation served to undermine the good of our human community, leading to political consequences which exalted the authority of the state. For both Chesterton and Belloc and others, the model is some kind of return to the life of medieval guilds and a form of economic organization that favored small businesses and an ownership of property that was distributed among large numbers of working people. The ideal agricultural unit is the family farm. In the cities, we should have small shopkeepers and persons who work together in small groups to make quality products. A bias exists against any kind of central planning, whether we refer to state forms of central planning or the kind of influence or monopoly that is exercised by large corporations. In this orientation and bias, we find a point of view that flows through the economic philosophy of Bernard Lonergan. Amongst Catholics, the kind of economic idealism that presents itself to us in the distributionism of Belloc and Chesterton continues to remain with us. Lonergan’s favorite economist, the one he felt closest to, was E. F. Schumpeter. “Small is beautiful.”
Fifth and lastly, the Church is confronted by two problems. First, how can economic reforms be encouraged in a way which does not turn the life of the Church into something that is meant to serve temporal causes? The Church rises or falls to the degree that it can encourage its members and adherents to live a life that transcends the “things of this world.” The faithful Catholic is encouraged to take a somewhat playful attitude toward the things of this world. Earthly, temporal goods do not enjoy any kind of ultimate importance although how a given person lives within our world is of ultimate importance in determining the eternal destiny that a given person will enjoy in the life that is to come. Second, to the degree that an explanatory understanding of economics does not exist, the Church’s pronouncements will come across as a form of moral idealism. It is all very well to say that all persons should be paid a “family wage.” Persons should be fairly paid and they should be able to live in a dignified manner on the kind of salary which they earn. However, how does one construct an economic order where it will be possible to pay persons fair and decent wages without consequences that could lead to bankruptcy? If proposals are made that are not grounded in a good understanding of the nature of economic life, their implementation will lead to a worsening of economic conditions and this worsening will have consequences and ramifications with respect to the existence of other human goods. To the degree then that the Church manifests an interest in the nature of economic equity, to the same degree will there grow a need for an understanding of economics that can transcend cultural differences and which is always applicable in human situations despite what changes can occur within the order of our human technology. If a theological understanding of the Church’s faith can suffer from cultural biases of one kind or another, cannot the same thing be said about coming to a better understanding of economic activity as this exists among human beings?
In the hope of moving toward an explanatory understanding of economics, we begin (hopefully) with good descriptions of human economic life. If good explanation is, in general, preceded by good descriptions, for this reason, we begin with accounts that attempt to provide some good descriptions. Our object and purpose is a macro-economic theory which can serve as a basis or a point of departure for explaining all the different changes (accelerations and decelarations) which belong to our economic life. Identify the key variables and see how they relate to each other. Move from apprehensions that attend to how things relate to ourselves as human subjects and move toward determinations which attend to how variables exist among themselves (apart from how we exist as human subjects).